Moody s upgrades E.ON s long-term rating to Aa3 with stable outlook. Increase in adjusted EBIT anitcipated for full year 2004

Transcription

1 January 1 March 31, Interim Report I/ JAN FEB MAR APR Adjusted EBIT up markedly Net income substantially higher Moody s upgrades E.ON s long-term rating to Aa3 with stable outlook Increase in adjusted EBIT anitcipated for full year MAY JUN JUL AUG SEP OCT NOV DEC

2 Interim Report I/ 2 E.ON Group Financial Highlights E.ON Group Key Figures at a Glance January 1 March 31 +/ % Electricity sales (in billion kwh) 1 Gas sales (in billion kwh) 1 Sales Adjusted EBITDA 2 Adjusted EBIT 3 Internal operating profit 2 Income from continuing operations before income taxes and minority interests Income from continuing operations Income from discontinued operations, net Net income Investments Cash provided by operating activities Free cash flow 4 Net financial position 5 (at March 31/December 31) Employees (at March 31/December 31) Earnings per share (in apple) ,622 3,024 2,345 1,948 2,152 1, ,455 1,720 1, ,663 70, ,713 2,658 1,931 1,496 1,898 1, ,145 1, ,855 67, Unconsolidated; prior-year figures include pro forma three-month figures for Ruhrgas. 2Non-GAAP financial measure; see reconciliation to consolidated net income on page 5. 3Non-GAAP financial measure; see reconciliation to consolidated net income on page 5 and commentary on pages Non-GAAP financial measure; see reconciliation to cash provided by operating activities on page 18. 5Non-GAAP financial measure; see reconciliation on page 19. Non-GAAP financial measures: This report contains certain non-gaap financial measures. Management believes that the non-gaap financial measures used by E.ON, when considered in conjunction with (but not in lieu of) other measures that are computed in U.S. GAAP, enhance an understanding of E.ON s results of operations. A number of these non-gaap financial measures are also commonly used by securities analysts, credit rating agencies, and investors to evaluate and compare the periodic and future operating performance and value of E.ON and other companies with which E.ON competes. Additional information with respect to each of the non-gaap financial measures used in this report is included together with the reconciliations described below. E.ON prepares its financial statements in accordance with generally accepted accounting principles in the United States (U.S. GAAP). As noted above, this report contains certain financial measures (internal operating profit, adjusted EBIT, adjusted EBITDA, net financial position, net interest expense, and free cash flow) that are not calculated in accordance with U.S. GAAP and are therefore considered non-gaap financial measures within the meaning of the U.S. federal securities laws. In accordance with applicable rules and regulations, E.ON has presented in this report a reconciliation of each non-gaap financial measure to the most directly comparable U.S. GAAP measure for historical measures and an equivalent U.S. GAAP target for forward-looking measures. The footnotes presented with the relevant historical non-gaap financial measures indicate the page of this report on which the relevant reconciliation appears. The non-gaap financial measures used in this report should not be considered in isolation as a measure of E.ON s profitability or liquidity, and should be considered in addition to, rather than as a substitute for, net income, cash provided by operating activities, and the other income or cash flow data prepared in accordance with U.S. GAAP presented in this report and the relevant reconciliations. The non-gaap financial measures used by E.ON may differ from, and not be comparable to, similarly titled measures used by other companies.

3 Interim Report I/ Contents 3 4 Results of Operations 6 Core Energy Business 6 Central Europe 8 Pan-European Gas 9 U.K. 11 Nordic 12 U.S. Midwest 14 Corporate Center 14 Other Activities 14 Viterra 15 Employees 16 Investments 17 E.ON Stock 18 Financial Condition 20 Highlights 20 Outlook 21 Interim Financial Statements (Unaudited) 30 Business Segments

4 Interim Report I/ 4 Results of Operations Consolidated Sales January 1 March 31 Central Europe Pan-European Gas U.K. Nordic U.S. Midwest Corporate Center Core Energy Business Other Activities 3 Consolidated sales 5,867 4,570 2,585 1, , , ,429 3, ,537 +/ % Effective January 1,, we realigned our organization based on the five target markets we had defined in on.top, our enterprise-wide strategy and structure project: Central Europe, Pan-European Gas, U.K., Nordic, and U.S. Midwest. To facilitate comparison, we have provided pro forma figures for the prior year according to the new corporate structure. In addition, effective the same date earnings before interest and taxes and adjusted for nonrecurring effects ( adjusted EBIT ) has replaced internal operating profit as our key performance measure (see commentary on pages 30-31) ,474 1,239 13, Pro forma figures according to the new market unit structure; adjusted for discontinued operations. 2Ruhrgas for the period February 1 March 31,. 3This segment consists of Viterra and Degussa; the latter has been accounted for using the equity method since February 1,. Adjusted EBIT January 1 March 31 Central Europe Pan-European Gas U.K. Nordic U.S. Midwest Corporate Center Core Energy Business Other Activities 3 Adjusted EBIT 4 1, , , , , ,931 +/ % 1Pro forma figures according to the new market unit structure; adjusted for discontinued operations. 2Ruhrgas for the period February 1March 31,. 3This segment consists of Viterra and Degussa; the latter has been accounted for using the equity method since February 1,. 4Non-GAAP financial measure; see reconciliation to consolidated net income on page Power Sales January 1 March 31, Billion kwh Total: Gas Sales 66.5 Central Europe 18.8 U.K Nordic 12.3 U.S. Midwest January 1 March 31, Billion kwh Total: Central Europe Pan-European Gas U.K. 1Gas sales of Ruhrgas AG according to new definition. 2.4 Nordic 6.9 U.S. Midwest We sold 112 billion kilowatt-hours (kwh) of electricity in the first quarter of, 5 percent more than in the same period last year. The increase is principally attributable to the inclusion of JME and JCE, regional distribution companies operating in the Czech Republic, and Graninge, a Swedish energy utility. Relatively mild temperatures resulted in our gas sales volume declining by 7 percent to approximately 300 billion kwh. Consolidated sales advanced 7 percent, primarily due to the inclusion of Ruhrgas and Graninge for the entire period under review. Ruhrgas became a consolidated E.ON company on February 1, Graninge on November 1,.

5 Interim Report I/ 5 Consolidated Net Income January 1 March 31 Adjusted EBITDA Depreciation and amortization Adjusted EBIT Adjusted interest income (net) Internal operating profit Net book gains Restructuring expenses Other nonoperating earnings Income from continuing operations before income taxes and minority interests Income taxes Minority interests Income from continuing operations Income from discontinued operations, net Cumulative effect of changes in accounting principles, net Consolidated net income 3, , , , ,451 +/ % In the first three months of, we grew adjusted EBIT by 21 percent to apple2.3 billion. All market units contributed to the increase. The increase recorded in the Corporate Center segment is primarily attributable to foreign-currency gains in connection with bond repurchases. 4 1,455 2, , , , , Restructuring expenses declined year-on-year to apple11 million and were recorded predominantly at the Central Europe market unit in the period under review. In the same period a year ago, restructuring expenses were recorded mainly at Powergen in connection with the integration of TXU activities. Other nonoperating earnings chiefly reflect a loss from the required marking to market of energy derivatives. The yearearlier figure reflected positive effects from the marking to market of derivatives. Income from continuing operations before income taxes and minority interests rose by apple254 million. In the first three months of, our continuing operations included a tax expense of apple526 million. The increase results mainly from a nonrecurring extraordinary item in the prior year. Minority interests increased slightly to apple175 million. Income from continuing operations rose to apple1,451 million. In the prior-year period, the cumulative effect of changes in accounting principles was primarily attributable to the adoption of the Statement of Financial Accounting Standards (SFAS) 143, Accounting for Asset Retirement Obligations. Consolidated net income climbed by 48 percent to apple1,455 million. Earnings per share advanced by 47 percent to apple2.22. Net book gains in the first quarter of were on par with last year and resulted in particular from the sale of equity interests in EWE and VNG (apple317 million). We also recorded book gains of apple75 million on the sale of securities. The prioryear figure consists primarily of a book gain of apple294 million on the sale of an approximately 5.8 percent interest in Bouygues Telecom, a book gain of apple168 million on the sale of a roughly 18 percent shareholding in Degussa, and a book loss of apple76 million on the sale of a 1.9 percent stake in HypoVereinsbank.

6 Interim Report I/ 6 Core Energy Business Central Europe Central Europe January 1 March 31 Sales thereof gas and electricity taxes Adjusted EBITDA Adjusted EBIT 5, ,440 1, , ,365 1,082 1Pro forma figures according to the new market unit structure. +/ % Spot Electricity Prices in Germany Spot contract apple per MWh Baseload: 24 hrs/day, Mo-Su Peakload: 9am8pm, Mo-Fr The prices end-customers in Germany paid for electricity averaged 3 percent higher year-on-year in the residential segment and 15 percent higher for new contracts in the industrial segment in the wake of the marked increase in wholesale prices in /1/03 4/1/03 7/1/03 10/1/03 1/1/04 4/1/04 Forward prices for year-ahead power have stabilized in. In the period under review, the average price was roughly apple32.3 per megawatt-hour (MWh) for year-ahead baseload power and roughly apple48.6 per MWh for year-ahead peakload power, approximately 30 percent higher than the comparable figures of a year ago. This increase is mainly attributable to consistently higher coal prices, which averaged apple63 per metric ton of coal equivalent (TCE) in the first quarter of, compared with apple36 per TCE in the prior-year quarter. Forward Electricity Prices in Germany Year-ahead contract apple per MWh Baseload: 24 hrs/day, Mo-Su Peakload: 9am8pm, Mo-Fr The Central Europe market unit sold apple3.4 billion kwh more electricity than in the first quarter of last year, mainly due to the first-time consolidation of JME and JCE. The two Czech regional distributors, which have been consolidated E.ON companies since October 1,, sold an aggregate 3.5 billion kwh of power in the first three months of. Power Sales by Customer Segment 1 January 1 March 31, Total: 66.5 Billion kwh (1Q03: 63.1) 13.2 Residential and (11.8) small commercial Large industrial (15.4) and commercial 35.8 Sales partners (35.9) 40 1Excludes energy trading activities /1/03 4/1/03 7/1/03 10/1/03 1/1/04 4/1/04 The Central Europe market unit met around 35 billion kwh, or just under 51 percent, of its power requirements with electricity from its own generation assets, compared with 53 percent in the prior year. From jointly owned power stations and outside sources Central Europe procured 3.2 billion kwh more electricity than the prior-year figure of 30.8 billion kwh. Central Europe thus met 49 percent of its power requirements with electricity procured from outside sources, an increase that results primarily from the inclusion of JME and JCE, which were not consolidated in the first quarter of. Central Europe has a balanced energy resource portfolio in its generation operations.

7 Interim Report I/ 7 Power Generation and Procurement 1 January 1 March 31 Billion kwh Owned generation 35.2 Purchases 34.0 from jointly owned power plants 3.0 from outside sources 31.0 Power procured 69.2 Plant-use, transmission losses, pumped-storage hydro 2.7 Power sales Excludes energy trading activities. 2Pro forma figures according to the new market unit structure. +/ % Gas Sales by Customer Segment 1 January 1 March 31 Billion kwh Residential and small commercial Large industrial and commercial Sales partners Total Excludes energy trading activities. 2Pro forma figures according to the new market structure / % Adjusted EBIT rose 9 percent year-on-year to apple1,179 million. Central Europe s business units showed the following development: Sources of Owned Generation January 1 March 31, Percentages 48.4 Nuclear 33.2 Hard coal The Central Europe West Power business unit grew adjusted EBIT by apple74 million to apple924 million. The increase results in particular from renewed improvements in gross margins. One positive contributing factor was the passthrough of higher wholesale electricity prices to ultimate customers. A further driver was a reduction in costs for nuclear waste management. 6.5 Lignite 4.1 Hydro 7.8 Other Gas sales volumes at the Central Europe market unit s regional distribution companies were down approximately 12 percent. In the prior-year period, the winter months were colder than average, leading to increased gas consumption. At apple203 million, the Central Europe West Gas business unit s adjusted EBIT was a modest apple5 million below the prior-year figure. The main driver was a weather-driven decline in sales volume. This effect was largely counteracted by favorable procurement costs. The Central Europe East business unit grew adjusted EBIT by apple21 million, principally due to the inclusion of JME and JCE. The Central Europe market unit grew sales, mainly due to the inclusion of JME and JCE and to higher electricity prices. Financial Highlights by Business Unit 1 January 1 March 31 Sales 2 Adjusted EBITDA Adjusted EBIT Central Europe West Power Gas 3,875 1, ,458 1, , , Central Europe East Other/ Consolidation Central Europe 5,585 5,166 1,440 1,365 1,179 1,082 1Pro forma figures for according to the new market unit structure. 2Excludes gas and electricity taxes; energy trading activities are recognized net.

8 Interim Report I/ 8 Core Energy Business Pan-European Gas Energy consumption in Germany was influenced by mild temperatures in the first quarter of. The comparably mild weather in early also had a negative effect on gas sales volume at the Pan-European Gas market unit. In the first quarter of, Pan-European Gas recorded gas sales of billion kwh, 7 percent below the prior-year figure of billion kwh. Pan-European Gas January 1 March 31 Sales thereof gas/electricity taxes Adjusted EBITDA Adjusted EBIT 4,570 1, ,330 1Pro forma figures according to the new market unit structure. Ruhrgas was consolidated effective February 1, / % Ruhrgas generated sales of apple4.6 billion in the first three months of. Sales growth compared with the prior-year period results primarily from the inclusion of figures for January, which were not included in the previous year, since Ruhrgas became a consolidated E.ON company on February 1,. Another factor leading to higher sales was the firsttime inclusion of Thüga s operations in Italy at the Downstream Shareholdings business unit. Gas Sales by Month 1) January 1 March 31 Billion kwh January February March Total / % Adjusted EBIT was apple416 million in the period under review. This 25 percent increase is also due to the fact that January was not included in the prior-year quarter. The Up-/Midstream business unit made the largest contribution to sales and earnings. Despite the inclusion of January in, its adjusted EBIT did not surpass last year s performance, primarily because of the temperature-driven decline in sales volume and revenues. 1Gas sales of Ruhrgas AG according to new definition. The results of Ruhrgas Industries, which are recorded under the Other/Consolidation business unit, were adversely affected by one-off charges from the purchase price allocation in the first quarter of. The absence of this nonrecurring effect resulted in an improved adjusted EBIT performance. The increase in adjusted EBIT is also due to the fact that January earnings streams were not included in the prior-year quarter. The Downstream Shareholdings business unit performed positively compared with the first quarter of. Together with the inclusion of January sales and earnings streams for the Ruhrgas Energie Beteiligungs Group, this performance principally reflects the inclusion of Thüga s Italian operations for the entire period and higher proportional SPP earnings. Financial Highlights by Business Unit 1 January 1 March 31 Sales 2 Adjusted EBITDA Adjusted EBIT Up-/Midstream 3,877 2, Downstream Shareholdings Other/ Consolidation Pan-European Gas 4,570 3, Pro forma figures for according to the new market unit structure. 2Figures include gas and electricity taxes.

9 Interim Report I/ 9 U.K. Sales by Customer Segment 1 U.K. January 1 March 31 Sales Adjusted EBITDA Adjusted EBIT 2, ,537 1Pro forma figures according to the new market unit structure / % U.K. peakload forward electricity prices at the end of March were per MWh, compared with per MWh in late March. The main drivers for this were higher fuel costs, forecast reductions in excess plant capacity, the cost of carbon dioxide (CO 2 ) emissions, and expected future environmental costs. Gas forward prices were also higher, rising 24 percent to 30 pence per therm (1 therm equals kwh), driven by higher oil prices and supply-demand issues in the United Kingdom and Continental Europe. In response to increases in the wholesale energy market, Powergen UK has increased its mass market retail prices for electricity by 6.9 percent and for gas by 4.9 percent with effect from January 5,. By the end of February, all of the other top suppliers had announced increases in retail prices of 5-6 percent. January 1 March 31 Billion kwh Residential and small and medium enterprises Industrial and commercial Power sales Residential and small and medium enterprises Industrial and commercial Gas sales Excludes wholesale and energy trading activities. Power Generation and Procurement January 1 March 31 Billion kwh Owned generation Purchases from jointly owned power plants from outside sources Power procured Plant-use, transmission losses, pumped-storage hydro Power sales / % / % U.K. Forward Electricity Prices per MWh Baseload: 11pm11pm, Mo-Su Peakload: 7am7pm, Mo-Fr Attributable Generation Capacity January 1 March 31, MW Total: 8,548 4,910 Hard coal ,581 Natural gas 418 Hydro, wind, oil, and other 639 CHP 10 1/1/03 4/1/03 7/1/03 10/1/03 1/1/04 4/1/04

10 Interim Report I/ 10 Core Energy Business The U.K. market unit sold 18.8 billion kwh of electricity in the first quarter of, a reduction of 7 percent on the same period in. Gas sales decreased by 4 percent over the first quarter of to 39.4 billion kwh. In both cases, the majority of the fall in sales volumes was in the industrial and commercial market, where Powergen s approach is based on margin rather than volume. The share of own generation of electricity procured was 9.6 billion kwh. The decrease in own generation of 2 billion kwh compared with the prior year is mainly related to the closure of the former TXU plants Drakelow and High Marnham. Generation capacity at March 31,, was 8,548 MW, 501 MW higher than in. The principal reason for this increase was that Killingholme power station (which had previously been mothballed) operated during winter /04 under a standing contract with National Grid, giving 600 MW of additional capacity. On April 1,, Killingholme power station was mothballed again. In addition, Powergen acquired the remaining 50 percent stake of Cottam Development Centre (a previously 50 percent owned power station) during January. Other movements include the closure of a 333 MW unit at Drakelow power station during. The sales increase of the U.K. market unit was due to the first-time consolidation of Midlands Electricity, which offset lower industrial and commercial sales volumes in the nonregulated business. Adjusted EBIT of apple270 million in the first quarter of showed a significant increase compared with the prior year. The adjusted EBIT improvement of the regulated business is principally the result of the acquisition of the Midlands Electricity business in January, which nearly doubled the size of Powergen s distribution business. Integration of the business is progressing well, and the rebranding of the East Midlands and Midlands Electricity distribution businesses to Central Networks began in early April. Adjusted EBIT from the non-regulated business increased by apple27 million compared with the same period in due to higher retail earnings from the residential and small and medium enterprise business partly offset by higher fuel and gas purchase costs. Financial Highlights by Business Unit January 1 March 31 Sales Adjusted EBITDA Adjusted EBIT Regulated business Non-regulated business 2,401 2, Other/ Consolidation U.K. 2, ,

11 Interim Report I/ 11 Nordic Spot electricity prices in Scandinavia were stable during the first quarter of. Although down considerably from the prior year due to the high availability of generation assets and to warmer temperatures, prices remained above the average for a normal year. Reservoir levels in Sweden and Norway were about 20 billion kwh less than in average water conditions. Forward electricity prices have generally risen since the end of, due mainly to low reservoir levels. Nordic January 1 March 31 Sales thereof energy taxes Adjusted EBITDA Adjusted EBIT 1, Pro forma figures according to the new market unit structure. +/ % Forward Electricity Prices NOK 1 per MWh Summer contract Year-ahead contract Nordic met around 9.5 billion kwh, or 64 percent (prior year: 7.7 billion kwh, or 64 percent), of its power requirements with electricity from its own generation assets. It purchased 5.4 billion kwh of electricity from jointly owned power stations and from outside sources, 26 percent more than the prior-year figure of 4.3 billion kwh. The increase is again mainly due to the inclusion of Graninge. In the first quarter of, the Nordic market unit s nuclear power stations produced 51 percent of total generation compared with 57 percent in the first quarter of. Power generated at hydroelectric facilities accounted for 38 percent against 26 percent in the prior year, resulting in lower average production costs. 1/1/03 4/1/03 7/1/03 10/1/03 1/1/04 4/1/04 1Norwegian kroner: NOK 8.63 = apple1 (average exchange rate on March 31, ). Spot Electricity Prices and Reservoir Levels Spot price Reservoir levels vs. average hydro Gas and heat sales volumes were on par with prior-year levels. In the first quarter of, the Nordic market unit increased its sales (excluding energy taxes) by 28 percent to apple919 million. The inclusion of Graninge accounted for apple120 million of the increase. NOK 1 per MWh /1/03 4/1/03 7/1/03 10/1/03 1/1/04 4/1/04 1Norwegian kroner: NOK 8.63 = apple1 (average exchange rate on March 31, ). Billion kwh Power Sales January 1 March 31, Total: 14.2 Billion kwh (1Q03: 11.4) 3.1 Residential (2.4) 4,4 Commercial (3.2) 6.7 Sales partners/ (5.8) Nordpool The Nordic market unit sold 2.8 billion kwh, or 25 percent, more power than in the first three months of. The increase mainly reflects the inclusion of Graninge (which became a consolidated E.ON company on November 1, ) and a return to higher hydroelectric output.

12 Interim Report I/ 12 Core Energy Business Power Generation and Procurement January 1 March 31 Billion kwh Owned generation Purchases from jointly owned power plants from outside sources Power procured Plant-use, transmission losses, pumped-storage hydro Power sales Pro forma figures according to the new market unit structure. +/ % Nordic grew adjusted EBIT by apple126 million year-on-year to apple279 million. Graninge contributed apple20 million to the increase. The improvement at Nordic s existing operations was due mainly to better margins in the electricity and heat retail segment, increased hydroelectric output, lower fuel costs in heat production, and higher revenues from electric distribution. Gas and Heat Sales January 1 March 31 Billion kwh Gas sales Heat sales Pro forma figures according to the new market unit structure / % +5 U.S. Midwest Power Generation and Procurement U.S. Midwest January 1 March 31 Sales Adjusted EBITDA Adjusted EBIT Pro forma figures according to the new market unit structure; adjusted for discontinued operations. +/ % January 1 March 31 Billion kwh Owned generation Owned power stations Leased power stations Purchases Power procured Plant-use and transmission losses Power sales / % Wholesale electricity prices in the Midwestern U.S. have remained strong at approximately $42 per MWh, with continued support from volatile natural gas prices and high coal prices. The North American gas supply-demand balance remains fragile, and gas prices are subject to ongoing weather-induced volatility. Unlike the cold temperatures experienced in the first quarter of, weather in the Kentucky area was relatively normal during the first quarter of. Sales by Customer Segment January 1 March 31 Billion kwh Regulated utility business Retail customers Off-system sales Non-regulated business Power sales Retail customers Off-system sales Gas sales / % The regulated utility operation sold 9.3 billion kwh of electricity in the first three months of, up from due to higher sales in the off-system wholesale market. Natural gas sales declined 0.5 billion kwh to 6.9 billion kwh due to milder weather conditions in the first quarter of. The non-regulated operation sold 3.0 billion kwh of electricity in the first quarter of, up 20 percent from, as a result of improved plant performance. At 11.9 billion kwh, the U.S. Midwest market unit s owned and leased generation output covered most of its demand during the period under review. Ninety-nine percent of electricity generation at the market unit was from coal-fired power stations. The attributable generation portfolio of the U.S. Midwest market unit remained unchanged from year end at 9,073 MW.

13 Interim Report I/ 13 First quarter sales of the U.S. Midwest market unit of apple520 million decreased 7 percent compared with the first quarter of due to the exchange rate deterioration of the U.S. dollar against the euro. In local currency, sales increased by 9 percent compared with the first quarter of. Adjusted EBIT of apple93 million improved 48 percent compared with the prior year (local currency increase of 71 percent). Adjusted EBIT of LG&E Energy s regulated utility operations was apple85 million, while the non-regulated operation contributed apple8 million. LG&E Energy s non-regulated operations posted adjusted EBIT of apple8 million, up appreciably from. LG&E Energy s Western Kentucky Energy operation improved considerably due to enhanced plant performance resulting in higher sales and lower operating costs. In, Western Kentucky Energy experienced a plant outage which did not recur in. Adjusted EBIT at LG&E Energy s regulated utility operations improved significantly over. In the first quarter of, the utility operation suffered one of the worst ice storms in the company s history. The storm left approximately 146,000 customers without power for up to two weeks. Financial Highlights by Business Unit January 1 March 31 Sales Adjusted EBITDA Adjusted EBIT Regulated business Non-regulated business U.S. Midwest

14 Interim Report I/ 14 Corporate Center The Corporate Center consists of equity interests managed directly by E.ON AG, E.ON AG itself, and consolidation effects at the Group level. Corporate Center January 1 March 31 +/ % The marked increase in adjusted EBIT is mainly attributable to foreign-currency gains. This mostly results from the repurchase of Midlands bonds. Sales Adjusted EBITDA Adjusted EBIT Other Activities Our other activities consist of our Viterra and Degussa shareholdings. Effective February 1,, Degussa has been accounted for using the equity method in line with E.ON s 46.5 percent shareholding in the company. Under the equity method, Degussa s sales are not included in E.ON s consolidated sales and 46.5 percent of Degussa s earnings after taxes and minority interests are recorded in E.ON s consolidated earnings for all periods after February 1,. Degussa contributed apple39 million to adjusted EBIT in the first quarter of, compared with apple107 million in the same period a year ago. Viterra January 1 March 31 Sales Adjusted EBITDA Adjusted EBIT / % As anticipated, Viterra s business was down in the period under review. The company expanded sales of condominiums. However, the total number of housing units sold in the first quarter of (1,126 units) was lower than the high prior-year figure (2,342 units), which included the sale of a block of multifamily homes, of which 1,257 units were located in the Ruhr region and the Düsseldorf area. Viterra s sales of apple224 million were down 9 percent relative to the same period last year. The reasons were lower sales in apartment buildings at Viterra Development and a decline in rental revenue in the wake of housing unit sales in. Viterra s adjusted EBIT declined to apple77 million after apple95 million in the prior-year period, in particular due to the reduction in sales of multi-family homes.

15 Interim Report I/ Employees 15 Employees 1 Central Europe Pan-European Gas U.K. Nordic U.S. Midwest Corporate Center Core Energy Business Viterra Total Degussa 2 March 31, 36,319 11,570 10,430 6,187 3, ,401 1,806 70,207 44,464 Dec. 31, 36,576 11,686 6,541 6,294 3, ,215 1,887 67,102 44,481 +/ % Central Europe s workforce consisted of 36,319 employees, a modest decline relative to year end. At 11,570, the number of employees at Pan-European Gas remained largely unchanged from year end. At the end of the first quarter of, the U.K. market unit had 10,430 employees. Since year end, the staff count increased by 59 percent due to the acquisition of Midlands Electricity (3,700 employees). Nordic s staff count of 6,187 at March 31,, represented a 2 percent decrease relative to year end. 1Figures do not include apprentices, managing directors, or board members. Pro forma figures for according to new market unit structure. 2Accounted for using the equity method effective February 1,. At 3,491, the number of employees at the U.S. Midwest market unit remained relatively stable. At the end of March, the E.ON Group had 70,207 employees in its continuing operations worldwide as well as 2,006 apprentices and 281 board of management members and managing directors. As of this date, 33,576 employees (48 percent) were working outside Germany. E.ON s workforce has increased by 3,105 employees, or 5 percent, since year end. This development is mainly attributable to the acquisition of Midlands Electricity. Since year end, the workforce at the Corporate Center declined by 32 percent to 404 employees due to the disposal of a noncore shareholding. At the end of March, Viterra employed 1,806 people, a 4 percent reduction from year end. One reason for the decline was the phaseout of Viterra Baupartner. During the reporting period, wages and salaries including social security contributions totaled approximately apple1.1 billion, compared with apple1.3 billion a year ago. Degussa, which we account for using the equity method, had 44,464 employees and 1,773 apprentices at March 31,. At year end, the company s staff count was 44,481.

16 Interim Report I/ 16 Investments Investments January 1 March 31 Central Europe Pan-European Gas U.K. Nordic U.S. Midwest Corporate Center Core Energy Business Other Activities 3 Total , , / % The E.ON Group invested apple1.7 billion in the period under review, 67 percent less than in the prior-year period. E.ON invested apple463 million in property, plant, and equipment and in intangible assets, compared with apple456 million in the first three months of. Investments in financial assets totaled apple1,257 million, versus apple4,689 million in the prior year ,218 5, ,145 1Pro forma figures according to the new market unit structure. 2Ruhrgas for the period February 1 March 31,. 3Consists of Viterra and Degussa; the latter has been accounted for using the equity method since February 1,. Investments by Market Unit January 1 March 31, Percentages 16 Central Europe Pan-European Gas 6 U.K. 21 Nordic 3 U.S. Midwest 52 Corporate Center The Central Europe market unit invested 2 percent less than in the previous year. Its capital expenditures for property, plant, and equipment and intangible assets totaled apple197 million, compared with apple186 million a year ago. Central Europe invested apple80 million in financial assets, versus apple96 million in the prior year. The greater part of capital expenditures for property, plant, and equipment went toward power generation and distribution assets. In the first three months of, the Pan-European Gas market unit invested apple26 million in property, plant, and equipment and intangible assets and apple13 million in financial assets. The prior-year figures were apple50 million and apple85 million, respectively. The major share of investments went toward infrastructure projects. At apple100 million, the U.K. market unit s capital expenditure in the first quarter of was 89 percent higher than the figure of apple53 million for the same period in. Capital expenditure in additions to property, plant, and equipment amounted to apple122 million (prior year: apple49 million) and was directed primarily at renewable generation, conventional power stations, and the regulated distribution business. The negative investment in financial assets of apple22 million in the first quarter of is the result of cash acquired as part of the Midlands Electricity acquisition which exceeded the cash outflow for the equity. In the first three months of, the Nordic market unit invested apple63 million in property, plant, and equipment. Investments in financial assets totaled apple304 million, chiefly due to the acquisition of additional equity in Graninge, of which E.ON Nordic now owns nearly 99 percent. Investments of the U.S. Midwest market unit for the first quarter were apple54 million, down from apple98 million a year ago due to the slowing of spending for environmental equipment and the costs of construction for combustion turbines to meet native load needs of the utilities retail customers. The investments reported under the Corporate Center segment consist mainly of payments to repurchase bonds relating to the acquisition of Midlands Electricity. In the year-earlier period, investments primarily related to the acquisition of Ruhrgas shares. Viterra s capital expenditures of apple3 million were appreciably lower than the prior-year figure of apple85 million, of which apple49 million was attributable to the acquisition of additional shares in Frankfurter Siedlungsgesellschaft.

17 Interim Report I/ E.ON Stock 17 The value of E.ON stock rose 4 percent in the first three months of, slightly outperforming other European blue chips as measured by the EURO STOXX 50 Return Index, which advanced 2 percent over the same period. E.ON stock performance was slightly under that of its peer index, the STOXX Utilities Return Index, which finished March 8 percent higher than its year end closing. The trading volume of E.ON stock climbed by 10 percent year-on-year to apple11.5 billion, making E.ON the eighth most-traded stock in the DAX index of Germany s top 30 blue chips. As of March 31,, E.ON was the fifth-largest DAX issue in terms of market capitalization. For the latest information about E.ON stock, visit E.ON Stock Shares outstanding (in millions) 1 Closing price (in apple) Market capitalization (apple in billions) 1Excludes treasury stock. High, Low, and Trading Volume January 1 March 31 High (in apple) 1 Low (in apple) 1 Trading volume 2 In millions of shares apple in billions March 31, Dec. 31, Based on closing prices. 2Source: Bloomberg; includes all German stock exchanges. E.ON Stock Performance versus European Stock Indices Percentages E.ON EURO STOXX STOXX Utilities /30/03 1/6/04 1/13/04 1/20/04 1/27/04 2/3/04 2/10/04 2/17/04 2/24/04 3/2/04 3/9/04 3/16/04 3/23/04 3/30/04

18 Interim Report I/ 18 Financial Condition Cash Provided by Operating Activities January 1 March 31 Central Europe 143 Pan-European Gas 833 U.K. 57 Nordic 247 U.S. Midwest 2 Corporate Center 213 Core energy business 1,065 Other activities 25 Cash provided by operating activities 1,090 Investments in fixed and intangible assets 463 Free cash flow , , / Management s analysis of E.ON s financial condition uses, among other financial measures, net financial position and cash provided by operating activities. Net financial position, a measure of E.ON s financial strength, equals the difference between our total financial assets and total financial liabilities. Cash provided by operating activities in the first three months of was above the prior-year figure. Cash provided by operating activities in our core energy business remained on a high level. The Central Europe market unit reported a decrease in cash provided by operating activities because payments for nuclear fuel reprocessing were higher than in the prior-year quarter due to a revised payment cycle. In addition, the figure for the previous year reflected higher intercompany tax credits. 1Pro forma figures according to the new market unit structure. 2Ruhrgas for the period February 1 March 31,. 3Non-GAAP financial measure. Net Financial Position Bank deposits Securities and funds (current assets) Total liquid funds Securities and funds (fixed assets) Total financial assets Financial liabilities to banks/loans Financial liabilities to third parties Total financial liabilities Net financial position 1 March 31, 3,924 7,597 11, ,286 15,621 4,328 19,949 7,663 Dec. 31, 3,807 6,988 10, ,776 16,295 3,336 19,631 7,855 1Non-GAAP financial measure; the table on the next page provides a reconciliation to the relevant GAAP measures. March 31, 4,076 6,724 10,800 1,128 11,928 17,589 7,215 24,804 12,876 The Pan-European Gas market unit continued to generate a high cash provided by operating activities. However, despite the consolidation of the entire quarter in (the prior-year quarter comprised February and March only), this market unit was unable to increase its cash provided by operating activities, which was adversely affected by the distinctly less favorable weather conditions and intercompany tax payments. U.K. and Nordic posted sharp increases in cash provided by operating activities. At U.K., the rise is attributable to the consolidation of Midlands Electricity in. In addition, the prioryear period reflected a number of nonrecurring items, such as settlement payments to unwind interest-rate swaps and a gas contract as well as an increase in working capital. The increase in Nordic s cash provided by operating activities is attributable to better margins in the retail business and higher hydroelectric output. The consolidation of Graninge and the decline in working capital also served to increase Nordic s cash provided by operating activities. The Corporate Center s cash provided by operating activities was higher, due in particular to positive effects from intercompany tax offsets. It should be noted that surplus cash provided by operating activities in the energy business of the Central Europe and U.K. market units are lower in the first quarter of the year owing to the nature of their billing cycles. During the remainder of the year, particularly in the second and the third quarters, there is a corresponding reduction in working capital, which results in surplus cash provided by operating activities.

19 Interim Report I/ 19 Free cash flow is defined as cash provided by operating activities less investments in fixed and intangible assets. E.ON uses its free cash flow primarily to make growth-creating investments, to pay out cash dividends, to repay debts, and to make short-term financial investments. Due to the stable level of investments in fixed and intangible assets, free cash flow for the first quarter of was above the year-earlier number. As of March 31,, the E.ON Group s net financial position the difference between our total financial assets of apple12,286 million and our total financial liabilities to banks and third parties of apple19,949 million amounted to apple7,663 million. Net financial position, a non-gaap financial measure, is derived from several items, each of which can be reconciled to a U.S. GAAP financial measure, as shown in the table at right. The E.ON Group s net financial position showed further improvement (the figure reported as of December 31,, was apple7,855 million). This is mainly attributable to cash provided by operating activities and funds received from the sale of VNG and EWE. On the liabilities side were the substantial financial outlays and the consolidation of financial liabilities in conjunction with the acquisition of Midlands Electricity and the remaining shares in Graninge as well as investments in fixed assets and other shareholdings. The offer to purchase Powergen bonds had no impact on our net financial position, though it did improve the structure of the E.ON Group s financial liabilities. Reconciliation of Net Financial Position March 31, Liquid funds shown in the Consolidated Financial Statements Financial assets shown in the Consolidated Financial Statements thereof loans thereof equity investments thereof shares in affiliated companies =Total financial assets Financial liabilities shown in the Consolidated Financial Statements thereof to affiliated companies thereof to associated companies =Total financial liabilities Net financial position Financial Key Figures January 1 March 31 11,521 18,735 1,787 15, ,286 22, ,930 19,949 7,663 Net interest expense 1 Adjusted EBITDA 2 Adjusted EBITDA net interest expense Dec. 31, 10,795 17,725 1,785 14, ,776 21, ,925 19,631 7, , x March 31, 10,800 19,409 1,878 15, ,928 27, ,342 24,804 12, , x 1Non-GAAP financial measure; see reconciliation to interest income shown in the Consolidated Statements of Income on page 31. 2Non-GAAP financial measure; see reconciliation to consolidated net income on page 5. Net interest expense rose by apple21 million relative to the prioryear figure, primarily due to the nonrecurring effect of the repurchase of Powergen bonds. Net interest expense consists only of interest income and interest expense that are included in the calculation of our net financial position. Adjusted EBITDA net interest expense improved further because adjusted EBITDA grew at a considerably faster rate than net interest expense. On April 30,, Moody s upgraded the long-term rating for E.ON bonds from A1 ( review for possible upgrade) to Aa3 ( stable outlook ). On August 4,, Standard & Poor s confirmed its AA- rating for E.ON s long-term bonds and changed the outlook from stable to negative. Commercial paper issued by E.ON has a short-term rating of A-1+ and P-1 by Standard & Poor s and Moody s, respectively. E.ON has committed itself to maintaining at least a strong single-a rating.

20 Interim Report I/ 20 Highlights In March, E.ON tendered an offer for all outstanding bonds of Powergen and its subsidiaries. The offer had a nominal value of approximately apple1.8 billion and did not include dollar-denominated bonds that mature in. The transaction was completed in March. E.ON paid approximately apple1.3 billion for bonds with an aggregate nominal value of apple1.2 billion. On October 23,, the EU adopted a directive that inaugurates trading in CO 2 emissions allowances on January 1, The directive required each EU member state to develop a national allocation plan (NAP) that explains how it intends to allocate CO 2 emissions allowances and to submit the NAP to the EU Commission for approval by March 31,. In March, the German federal government reached a compromise on the NAP. Based on the information currently available to us, we are unable to issue a final statement on the effects emissions trading will have on E.ON. We still have to study the recently released list of generating facilities. Furthermore, there are no reliable indicators for the future price of CO 2 emissions allowances. Based on preliminary calculations, however, we believe that the reduction obligations are tolerable for E.ON. Moreover, our generation fleet emits relatively little CO 2, giving us a comparatively favorable position relative to our competitors. Outlook Our solid start in strengthens our expectation that fullyear adjusted EBIT will surpass the record number we posted in. However, we expect full-year results to show a lower rate of increase than in the first quarter, which benefited considerably from consolidation effects. We expect our core energy business to achieve double-digit growth in adjusted EBIT. The earnings forecasts for the individual market units are as follows: We anticipate that the Central Europe market unit s adjusted EBIT for will top the comparable year-earlier figure. We expect the main earnings drivers to be further improved margins in the electricity business, the inclusion of newly consolidated subsidiaries in central Eastern Europe, efficiency improvements, and reductions in nuclear waste management costs. For, we do not expect Pan-European Gas to repeat the prior-year s extraordinarily high adjusted EBIT performance. The first quarter of was warmer than the year-earlier period and therefore resulted in lower gas sales volumes and revenues. Due to billing cycles, this effect also negatively impacts subsequent months and, together with current energy price trends, is the reason behind our lower earnings forecast. The adjusted EBIT of the U.K. market unit is expected to be significantly above the prior-year level. The main driver for this will be the first-time consolidation of the Midlands Electricity distribution business. In response to increases in wholesale energy prices in the non-regulated business, Powergen increased the prices of both electricity and gas for the majority of its residential and small business customers. The Nordic market unit is expected to benefit from the firsttime full-year consolidation of Graninge, better margins, and increased hydroelectric output. Assuming normal water conditions, we therefore expect adjusted EBIT for to be up markedly from the prior-year figure. We expect adjusted EBIT for the U.S. Midwest market unit to be ahead of in local currency. This increase should occur, in part, as a result of the December rate cases filed with the Kentucky Public Service Commission to increase retail customer rates at the two utility businesses. The success of the non-regulated businesses will depend on coal and wholesale prices in the Midwest and political and economic factors in Argentina. In reporting currency, adjusted EBIT is expected to be affected by the development of the U.S. dollar-euro exchange rate. After Viterra s extraordinary growth rate in housing units sold in, we expect declining sales of housing units in. We therefore do not anticipate that Viterra s adjusted EBIT for will reach the prior year s level. Viterra s earnings development will depend to a substantial degree on the effects of changes to the tax laws for the real estate sector, which are difficult to estimate at this time. Despite additional improvements in our operating performance, we do not expect consolidated net income for to reach the prior-year level. From today s perspective, we do not anticipate book gains in that would be similar in magnitude to those recorded in.

21 Interim Report I/ Interim Financial Statements (Unaudited) 21 E.ON AG and Subsidiaries Consolidated Statements of Income January 1 March 31 Sales Electricity and natural gas taxes Sales, net of electricity and natural gas taxes Cost of goods sold and services provided Gross profit on sales Selling expenses General and administrative expenses Other operating income Other operating expenses Financial earnings Income from continuing operations before income taxes and minority interests Income taxes Minority interests Income from continuing operations Income from discontinued operations, net Cumulative effect of changes in accounting principles, net Net income 14,622 1,394 13,228 9,973 3,255 1, ,841 1, , , ,455 13,713 1,095 12,618 9,509 3,109 1, ,506 1, , , Earnings per share (in ) from continuing operations from discontinued operations from cumulative effect of changes in accounting principles, net from net income